When you're young, building credit is one of the most important steps you can take for a bright financial future. Having good credit can not only help you get loans and credit cards, but it can even affect where you live and your employment.
However, how do you show that you can be trusted with credit when you’ve ever had it before? It’s one of the many problems young people face but thankfully there are some crucial steps you can take.
The Importance of Building Up Credit
Your credit score essentially acts as a risk profile. Whenever you’re being trusted with money, the lender wants to have assurances that you’re going to be paying it back. The better your credit score, the lower the risk in giving you access to credit.
It can also be used by landlords and employers to evaluate your reliability and trustworthiness. Due to this, you want to develop a history of being responsible with credit, as it can open up many financial doors to you in the future.
The Benefits of Building Good Credit
As we mentioned there, building good credit can be hugely helpful. Here are some key reasons why you should make it a priority.
Improved Approval Odds – With the lower risk that comes from a good credit rating, your applications are more likely to be approved. This includes obvious things like credit cards and loans but can also include phone contracts, utilities, and insurance.
Better Interest Rates – When offered a credit solution, lenders will apply a rate of interest, which is effectively the cost of getting credit. The better your credit rating, the lower the interest you’re offered will be.
Higher Credit Limits – If a lender fears you may struggle with repayments, they won’t offer you a lot of money. Good credit allows you to get much higher credit limits, giving you greater financial flexibility.
Easier Rental Approval – Landlords will often check your credit rating as a part of their approval process. Good credit will give you a wider range of housing options to choose from before you have the money to get a mortgage.
5 Tips for Building Credit
Now that we know the importance of building your credit rating, what steps should you take to do it? Here are some proven methods that are sure to get your rating moving in the right direction.
1. Open a Credit Card Account
You should always be careful when taking on debt, but a credit card is a great place to start. You have a few options here, with one of them being to open a card with a small spending limit and pay it off completely each month.
Other options include a student or secured credit card. These are designed for those with limited credit history. With a secured credit card, you pass over a deposit, which gives the lender security in case you can't make payments.
2. Become an Authorized User
A simple and effective solution for young people is to become an authorized user on another credit card. This is traditionally done on a parent's credit card, but it can be done with other family members or friends.
This helps to give you a positive credit footprint if you know that payments will always be made. However, not all issuers report this information to the credit bureau, so you’ll want to check this before you make the move.
3. Make Timely Payments
Whatever bill you have, make sure you're always making payments on time. This includes student loans, utility bills, and phone contracts. These payments will continue to have a positive effect on your score.
For bills and rent payments, check to see if you can get them added to your credit report. Many minor bills won't be covered, but there are reporting services out there that can ensure you are acknowledged for paying all your bills.
4. Keep Credit Utilization Low
Too much of anything can be a bad thing, including credit. Even if you’re making your payments on your time, lenders may see you as a risk if you’re always close to your credit limits. This can make it seem as though you’re near your maximum spending power.
You should also limit your credit inquiries. Too many applications can have a negative effect on your score. Make sure to do your research and only apply when you're sure you have a high chance of success.
5. Monitor Your Credit Report
Don't just think you're taking the right steps, and never check your credit report. They aren't always accurate and don't always show all the bills you're paying. Make sure you keep an eye on it to check it's an accurate representation of your financial position.
How Long Does It Take to Build Credit?
A question you may be asking now is how long does it take for these steps to have a meaningful impact on your credit report? Unfortunately, it’s a gradual process that will require both consistency and patience.
There is no set time when it comes to establishing a credit history. It can take several months to see an improvement, but if you take the right steps, then you can have confidence that your score will be heading in the right direction.
How To Build Good Financial Habits
Having a positive financial future isn’t just about having good credit. You’ll also want to establish some good financial habits that can be essential to having long-term financial success. Here are some vital tips that can help.
Create a Budget – Once you have access to credit, you want to ensure you’re always living within your means. Allocate a portion of your income to debt repayment. This will allow you to know when and if you’re able to spend on luxuries.
Save If You Can – If it’s possible, save for emergencies and your future goals. For example, you don’t want to take out extra credit that you didn’t want to pay for the likes of car repairs. You’ll also need to save for when you can eventually apply for a mortgage.
Avoid Excessive Debt – The counterproductive aspect of building credit is that you need to get yourself in some debt to show you can pay it off. However, make sure to keep your spending under control and, ideally, pay off your credit cards each month to minimize interest.
Appreciate It’s a Process
There is no magic step you can immediately take to get great credit. Appreciate that it's a process you need to follow and that it will take time. If you take the right steps, you'll eventually get to the point where you have full control over your financial future.
Good habits when you are young will hold you in good stead when it eventually comes to big purchases such as getting a car or mortgage. Building credit is a marathon and not a sprint, so check your report every now and again to ensure it’s going in the right direction.
When you're young, building credit is one of the most important steps you can take for a bright financial future. Having good credit can not only help you get loans and credit cards, but it can even affect where you live and your employment.
However, how do you show that you can be trusted with credit when you’ve ever had it before? It’s one of the many problems young people face but thankfully there are some crucial steps you can take.
The Importance of Building Up Credit
Your credit score essentially acts as a risk profile. Whenever you’re being trusted with money, the lender wants to have assurances that you’re going to be paying it back. The better your credit score, the lower the risk in giving you access to credit.
It can also be used by landlords and employers to evaluate your reliability and trustworthiness. Due to this, you want to develop a history of being responsible with credit, as it can open up many financial doors to you in the future.
The Benefits of Building Good Credit
As we mentioned there, building good credit can be hugely helpful. Here are some key reasons why you should make it a priority.
Improved Approval Odds – With the lower risk that comes from a good credit rating, your applications are more likely to be approved. This includes obvious things like credit cards and loans but can also include phone contracts, utilities, and insurance.
Better Interest Rates – When offered a credit solution, lenders will apply a rate of interest, which is effectively the cost of getting credit. The better your credit rating, the lower the interest you’re offered will be.
Higher Credit Limits – If a lender fears you may struggle with repayments, they won’t offer you a lot of money. Good credit allows you to get much higher credit limits, giving you greater financial flexibility.
Easier Rental Approval – Landlords will often check your credit rating as a part of their approval process. Good credit will give you a wider range of housing options to choose from before you have the money to get a mortgage.
5 Tips for Building Credit
Now that we know the importance of building your credit rating, what steps should you take to do it? Here are some proven methods that are sure to get your rating moving in the right direction.
1. Open a Credit Card Account
You should always be careful when taking on debt, but a credit card is a great place to start. You have a few options here, with one of them being to open a card with a small spending limit and pay it off completely each month.
Other options include a student or secured credit card. These are designed for those with limited credit history. With a secured credit card, you pass over a deposit, which gives the lender security in case you can't make payments.
2. Become an Authorized User
A simple and effective solution for young people is to become an authorized user on another credit card. This is traditionally done on a parent's credit card, but it can be done with other family members or friends.
This helps to give you a positive credit footprint if you know that payments will always be made. However, not all issuers report this information to the credit bureau, so you’ll want to check this before you make the move.
3. Make Timely Payments
Whatever bill you have, make sure you're always making payments on time. This includes student loans, utility bills, and phone contracts. These payments will continue to have a positive effect on your score.
For bills and rent payments, check to see if you can get them added to your credit report. Many minor bills won't be covered, but there are reporting services out there that can ensure you are acknowledged for paying all your bills.
4. Keep Credit Utilization Low
Too much of anything can be a bad thing, including credit. Even if you’re making your payments on your time, lenders may see you as a risk if you’re always close to your credit limits. This can make it seem as though you’re near your maximum spending power.
You should also limit your credit inquiries. Too many applications can have a negative effect on your score. Make sure to do your research and only apply when you're sure you have a high chance of success.
5. Monitor Your Credit Report
Don't just think you're taking the right steps, and never check your credit report. They aren't always accurate and don't always show all the bills you're paying. Make sure you keep an eye on it to check it's an accurate representation of your financial position.
How Long Does It Take to Build Credit?
A question you may be asking now is how long does it take for these steps to have a meaningful impact on your credit report? Unfortunately, it’s a gradual process that will require both consistency and patience.
There is no set time when it comes to establishing a credit history. It can take several months to see an improvement, but if you take the right steps, then you can have confidence that your score will be heading in the right direction.
How To Build Good Financial Habits
Having a positive financial future isn’t just about having good credit. You’ll also want to establish some good financial habits that can be essential to having long-term financial success. Here are some vital tips that can help.
Create a Budget – Once you have access to credit, you want to ensure you’re always living within your means. Allocate a portion of your income to debt repayment. This will allow you to know when and if you’re able to spend on luxuries.
Save If You Can – If it’s possible, save for emergencies and your future goals. For example, you don’t want to take out extra credit that you didn’t want to pay for the likes of car repairs. You’ll also need to save for when you can eventually apply for a mortgage.
Avoid Excessive Debt – The counterproductive aspect of building credit is that you need to get yourself in some debt to show you can pay it off. However, make sure to keep your spending under control and, ideally, pay off your credit cards each month to minimize interest.
Appreciate It’s a Process
There is no magic step you can immediately take to get great credit. Appreciate that it's a process you need to follow and that it will take time. If you take the right steps, you'll eventually get to the point where you have full control over your financial future.
Good habits when you are young will hold you in good stead when it eventually comes to big purchases such as getting a car or mortgage. Building credit is a marathon and not a sprint, so check your report every now and again to ensure it’s going in the right direction.
https://www.experian.com/blogs/ask-experian/why-would-you-want-a-good-credit-score/
